India needs to expand its secondary aluminium production to tap into global markets

In the worldwide aluminium business, the focus is increasingly shifting to downstream activities. The processing of primary aluminium in secondary smelters for value addition churns out useful, semi-finished products like rolled extrusions, fabrications and also finished items that find applications in automobile & transportation, construction, packaging, power and consumer products industries. In terms of supply of such semi-fabricated shipments, India’s contribution is noticeably low – less than five per cent – and this is attributed to both technical and non-technical handicaps. Indian secondary producers need to address both issues if they want to position themselves as leading suppliers of downstream products to the world market.

Secondary smelting in India: The need to scale up

The secondary aluminium sector constitutes nearly 40 per cent of the aluminium consumed in India. The sector is largely cluttered and unorganised, with the presence of around 3500 producers. Since the cost of primary aluminium smelting is high in India, the secondary producers depend upon imports of aluminium scrap from the Middle East, China, South Africa, China, Taiwan, Nigeria, Spain, Australia, Malaysia and the EU. Secondary aluminium processing units are concentrated mostly in the Western and Northern regions of the country. The imported scrap is used by domestic foundry and extrusion sectors to produce items largely for the automotive sector. About 56 per cent of the country’s aluminium imports is made up of scrap. In 2014, India imported 0.84 million tonnes of aluminium scrap valued at $1.5 billion. In 2015, the figure inched up to 0.88 million tonnes, and at the end of 2016, scrap imports have been measured at 0.92 million tonnes. With a 25 per cent share, Saudi Arabia and UAE are the top aluminium scrap exporters to India, followed by the Netherlands and Australia.

The secondary aluminium producers rely heavily on imported scrap. In India, there is no system of scrap collection though the country still produces roughly 0.6 million tons of secondary aluminium through captive processing of seconds and scrap imports. The country imports huge quantities of scrap which has rose at a CAGR (compounded annual growth rate) of 27 per cent since 1997-98. About 12 per cent CAGR is predicted for the recycled aluminium in India in 2015-16. Some of the leading producers of secondary aluminium products in India are Associated Aluminium India Pvt Ltd, Century Metal Recycling Ltd, Century N F Castings, Indo Alusys Industries, Minex Metallurgical Company, Namo Alloys Pvt Ltd and Sunalco Alloys to name just a few.

Next, there are some big players in secondary aluminium business like Aditya Birla Group owned Hindalco Industries and Jindal Aluminium Ltd (JAL). JAL is the leading aluminium extrusion manufacturer in the country with a market share of over 35 per cent. With 11 aluminium extrusion presses under one roof, JAL has an installed capacity of 128,000 metric tonne per annum. JAL is engaged in manufacturing aluminium extruded profiles that are used across industries such as FMCG, construction, automobiles, rail and road transport, solar power, aerospace, electrical and electronics, and defence, among others.

With bigger corporate entities eating into the markets of the already-fragmented secondary producers and with primary producers like Hindalco integrating backwards, the focus of the industry should now be on consolidation. Taking cues from their counterparts in US and EU, players should bank on innovcation to create export market for their products. This needs extra attention as the customers of semi-fabricated products are highly sensitive to the stringent needs of the finished products. Hence, they seek highly specific product functionality.

This requirement requires close linkages between the aluminium industry and the user’s industries to produce engineered and fully recyclable materials solutions at each and every fragment of the supply chain. A large part of India’s aluminium fabricated products are designed for manufacture from primary aluminium. This strategy has to change given India’s limited capacities in primary aluminium making and the high energy costs associated with the process.

As such, more downstream products must be produced from secondary aluminium- this needs stringent manufacturing procedures to maintain quality and consistency. On the technical aspect, the country’s secondary producers should focus on developing predictive models retaining alloy microstructure to specific forming processes performed on secondary aluminium. Simultaneously, they can develop methods to efficiently and effectively roll complex alloys. What’s more, the focus should be on innovative methods to continuously monitor the fabrication processes and developing advanced forming technologies such as rapid solidification, powder metallurgy, semi-solid manufacturing, aluminium foams and squeeze casting.

The cost challenge and how MIP can dwarf secondary production

The secondary aluminium making in India is troubled by a slew of handicaps. First- there are low entry barriers because of low capital costs and low dependence on technology. These low entry barriers result in strong competition but low capacity utilisation. Secondly, the secondary producers have to grapple with high input costs given their near complete reliance on imports. They have to fall back on imports as most of the primary aluminium produced in India is either captively consumed or exported. More importantly, imports of aluminium scrap come with high duties.

While the high landed cost of aluminium scrap is already exerting pressure on margins of secondary producers, the primary aluminium makers are increasingly taking to backward integration to take advantage of the low cost of aluminium they produce. Further, the primary aluminium makers’ demand for the imposition of a Minimum Import Price (MIP) to curb imports has rattled the players in secondary smelting. The Aluminium Secondary Manufacturers’ Association is lobbying hard with the Indian government against fixing any MIP on aluminium imports. The association feels the call for MIP is unjustified and the giant primary producers are pressuring the government to mint money by getting protection in the form of higher import duties. India levies a basic customs duty of five per cent, a countervailing duty of 12 per cent and a special countervailing duty of four per cent, depending on the quality of scrap imported. Imported aluminium, be it unwrought or semi processed material still caters to 51 per cent of the domestic consumption pie. To counter this, the primary aluminium industry has been asking for 15 per cent import duty and MIP.

Tapping potential market opportunities

The global aluminium casting market is poised to grow at a CAGR (compounded annual growth rate) of six per cent by 2020. An increase in the preference for aluminum casting for the production of vehicles and their components will drive the prospects for growth in this market. Aluminium castings are lightweight and can be easily customized through heat treatment. The growing preference for corrosion-resistant and highly conductive materials will drive the demand for aluminium casting until 2020.

Also, automotive manufacturers are moving from cast iron engine blocks to aluminium engine blocks. This shift in the preference for non-ferrous materials, such as aluminium casting is expected to fuel growth in this period. The expanding market offers a plethora of opportunities for Indian sems makers given their low contribution to the worldwide fabrication shipments. The fabricated products would be increasingly absorbed by sectors like automobiles, heavy machinery and industrials, aerospace and shipping, building & construction hardware, power & hand tools and telecom.

The automobiles sector is set to make up 55 per cent of the market share as tighter emission norms will force manufacturers to use lighter materials such as aluminium as it helps to cut emissions by reducing the overall weight of the vehicle. To acquire a foothold in this competitive space, Indian vendors have to invest in developing new technologies and keep themselves abreast of emerging technologies that could have a positive impact on their product lines.